|
Whether you are just starting out or already in retirement, you may not be comfortable with recent market swings. That means your risk tolerance likely is low. Young investors should try to get accustomed to risk. They can capitalize on down markets by dollar-cost averaging, which enables them to buy fund shares on the cheap. Older investors can mitigate risk by limiting exposure to the stock market and making wise bond purchase decisions.
Bankrate's article, "Managing retirement savings in down markets," applies to investors of all ages. Below I offer age-specific advice to help you make savvy decisions about retirement investing under all market conditions.
1. Early career
It's hard to make retirement investing a priority when you're just
starting out in the work force. So many other life goals compete
for a piece of your paycheck. That's unfortunate, because the money
you contribute to retirement accounts in your 20s has the longest
time to grow.
Find a place for retirement savings in your monthly spending plan and you'll congratulate yourself later in life.
You're also at a stage in life where you can take on a fair amount of risk in how you invest your retirement accounts. Buying into the market at current levels carries less risk to you because of how long you have until retirement.
 |
| Investing through the ages |
|
|
|
|
Don't be U.S.-centric in your investments. The world is your oyster. Search for pearls everywhere. Emerging growth and developed countries should be part of your asset mix. Don't just invest in their stocks. Invest in their bonds and real estate, too. The real estate piece is most easily managed with real estate investment trusts, or REITs.
It's important to learn enough about investing to understand your investment options and decide on an investment allocation. Many employers now provide some measure of investment advice along with the investment options offered in their retirement plans. If you can't get comfortable with the advice, get a second opinion. I recommend getting a second opinion from a fee-based Certified Financial Planner.
Target-date funds with built-in asset allocation strategies have become a popular fund choice in retirement accounts and may even be the default investment option if you don't pick your own funds when you sign up for the company retirement plan. With a target-date fund, you pick an investment horizon, usually around the time you plan to retire, and the mutual fund's investment manager changes the investment allocation as you age, dialing down risk as you approach retirement.
While target-date funds are often touted as one-size-fits all funds, they may or may not be right for you, based on your needs and risk tolerance. Some offer little foreign stock exposure, for example. Read the fund's prospectus before deciding on whether to invest in such a fund.
2. Midcareer
The midcareer stage offers its own set of retirement challenges. The competition for a piece of your paycheck increases when you consider other life goals such as funding college educations for your children, establishing a wedding fund, seeing a bit of the world or remodeling the den.
If you were able to put aside money for retirement in the early years of your career, you may feel less pressure to ramp up contributions midcareer. Still, this is the time to be building balances in retirement accounts. When you take a long-term perspective, it makes much more sense to be a buyer at current stock market levels than it does to sell at these levels.
After a stock market decline, insurance companies often begin heavily promoting equity indexed annuities and equity indexed CDs that promise to give investors some of the potential upside in stock market returns without any downside risk. These investments often don't deliver the returns the investor expects, in part because of limits on the upside potential and often the lack of dividend payments. In addition, these products generally come with high fees and expenses. Be cautious when considering these types of investments. The SEC publication, "Equity-Indexed Annuities," offers more information about annuities.
|
